It’s all starting to get quite exciting, again. After April’s system shock led to a long downward trend in the market, the Bitcoin defibrillator sparked everything again in July and now, here we are, after a heady few last Summer evenings, watching BTC nurdle towards its all-time high and the rest of the crypto market itching to charge upward after it. This time, it’s really different.
How New The Crypto and Defi Markets Are
Except it’s not. Or it might be. This joyous, bounding new distributed ledger technology is barely a pup. House-trained yes, no 99% disappearing acts and 1000x moons on the daily, but still figuring its way around the human house of collective data-value. This is why the markets are so volatile in crypto, because everyone knows one project is going to be ‘the one’, but no one is quite sure which it is or – as adoption starts to pick up pace, and it prepares itself to meet the riddling regulatory sphinx – when it will be. Sensible Volatility Precautions
Diamond handed shrieking is usually the preserve of demented stock forums and NFT parlour junkies – or someone whose already in just a little bit too deep. Most crypto traders hold sensibly and trade profitably, and are worried about risk. Many traders who thrive in alternate markets get sweaty collared at the plunges and lunges of the crypto merry-go-round. As the crypto markets become more sophisticated, the need for price protection becomes ever more paramount. No one wants to wake up to a 50% loss anymore and, if they trade smart, they won’t have to. Stop Losses and their Drawbacks
Stop-losses do a reasonably good job at protecting traders. Keeping some assets as stablecoins when nervous and take-profit orders also help. For more sophisticated actors, hedging against your own positions with short-options can mitigate damage in the case of a market event, but also severely hurts potential upside. The issues with stop-losses are clear though. One, if you have a stop-loss order on an asset, then a large, sudden dip with equally fast subsequent recovery (as happens all the time in crypto) can leave your order being triggered but the asset being the same price it was. This is especially true in the event of a flash crash . Horror stories of price glitches from faulty oracles liquidating entire asset pools are uncommon – but not unheard of.
Perhaps a bigger problem is the fact that price-protection in the form of stop losses happens off-chain. If your asset is on an exchange, it can’t be put to work productively in on-chain DeFi environments. The yield possibilities of lending, farming, and providing liquidity are shut off. This, then, can mean that swathes of tokens are sitting – unproductively – off-chain, hampering not only individual portfolio growth but also market growth as a whole. In order for the DeFi markets to keep flourishing, the need for price protection that doesn’t render an asset useless is needed. How Bumper Finance’s On-Chain Price Protection May Change the Market?
A few protocols are toying with the idea, yet Bumper Finance is one protocol that seems to have already achieved it and is about to launch into the markets. Their price-protection protocol runs entirely on-chain. When you take protection on an asset (by paying a USDC premium), you are given a representative token which is called a “bumpered asset”, or bTOKEN (e.g: bETH). This bETH can then be husbanded throughout the entire ERC-20 ecosystem but still be protected from calamitous price drops as it’s covered by Bumper Finance’s unique protection.
This means users who engage with Bumper Finance’s protocol really can have their cake and eat it too. Not only do they lock in price floors on their holdings but can enjoy all the available upside, but they are also able to use the asset to gain yield like they would any other asset. Bumper foresees a future where the entire market is ‘bumped up’ by their price-protection protocol, with those who buy and stake $BUMP rewarded handsomely for doing so. What is the $BUMP Token and How to Get it?
Every action on the protocol requires $BUMP. This includes taking out protection. Protection can be paid in either USDC or by slicing a fraction from the asset you want protected, but users must buy and stake $BUMP. The $BUMP earns a yield though while it’s staked so, if the protocol expands fast enough, there is even a possibility […]
source This Time It Can Be Different; How Bumper Finance Can Mature the DeFi Market